The Cart Before the Horse: When Not to Innovate

Innovation is hot. Everywhere is another book, publication, blog or daily tweet on the need to innovate, how to innovate, why to innovate and/or lessons learned from the great innovators. According to N-Gram Viewer, a Google innovation, 118,000 books were published mentioning innovation in 2008, nearly double the 65,000 published in 1988. Studies by Forbes, Ernst & Young, and The Wharton School of Business suggest that up to 50% of the profit margins of the Fortune 100 come from products created this millennium.[1]

In our knowledge economy, innovation is a core value. With all the emphasis on the need to innovate, many a planning session has produced, “We need to increase innovation as part of our strategic plan.” So rather than add more fuel to the fire on innovate to survive, I would add some cool caution to ensure innovation becomes a core value rather than an expensively trendy fad.

Here are circumstances where the organizational decision to innovate may prove counterproductive.

1) When you have to be right. Innovation is a byproduct of well focused business model. Yet often companies that have not fully mastered their basic business model, or business basics, see innovation as the solution to their economic woes. “A great new product like we had in 2006 is what we need.” Innovation may flow out of solving the business basics that create an unprofitable business. Usually happens. Starting with innovation as the solution to the problem often only enlarges the initial problems driving unprofitability. The cart leads the horse.

2) When you cannot afford to be wrong. Burn rates are back in fashion. Lenders are tougher and tighter, especially when you need them. Innovation is a slow, incremental process. The best innovations bubble up and/or have to go through layers of scrutiny or agonizingly slow periods of trial and ERROR. The highest success rate for new ideas I could find was 2%.[2] And the success rate for new products meeting customer needs is less than 40%.[3] When “innovation” is viewed as the silver bullet of corporate profitability (see # 1), the natural process of innovation is compromised. So when innovation absolutely, positively must be there in the next years earnings, call your broker. A faster horse on a broken cart accelerates problems.

3) When success is the primary metric for reward. A CFO friend with a bio-tech startup reminded me of this when he met with analysts to discuss their IPO. He spent two years managing cash flow trying to conserve cash and minimize losses. Yet all his efforts resulted in negative reviews from analysts and underwriters. They viewed potential by the size of the accumulated losses. The bigger the losses, the higher the potential for a home run product and thus a higher IPO price.

When the organization has a culture that rewards success and penalizes failure, innovation suffers. When organizations fail to focus resources on trial and error, both dollars and people, innovation remains a second tier value. A thoroughbred may not know how to keep a cart steady on a bumpy road.

4) When it’s top down. Innovation absolutely requires leadership. Leadership requires more than just decree. Innovation leadership requires creating and supporting an atmosphere that values and rewards trial and error, crazy ideas, and non consensus thinking. Building an organization where trust is great enough for everyone to take risk to move the ball is hard work. To make innovation, as Covey would classify, an important, but not urgent part of everyone jobs takes guts.[5] Sharing power is hard when you spent your career working hard to obtain it.

The IDEO video in last month’s Wisepreneur, said it best, “Enlightened trial and error succeeds over the planning of the lone genius.”

5) When you are heavily invested in Lean and Six Sigma as Strategic Initiatives. These quality improving and waste removal platforms are great at improving productivity and have innovation in their approach. They focus, however, on cost side of the equation and rarely focus on the revenue/customer side. When these approaches become a driving force in the organizational culture, they can limit innovation. To allow employees time to work on new ideas outside their current projects flies in the face of Lean and Six Sigma principles of waste. Yet that is how 50% of 3M’s product line came into existence.[6] Innovation should be ridden bareback with a light reins and not saddled with blinders and a whip.

6) When you are in the middle of an enterprise wide project. In today’s lean work environment, projects take longer to complete. In fact, I have clients whose biggest problem according to their team is finishing what they started. Innovation is a process rather than a project but it’s a big project to create an innovative atmosphere. When started in the middle of similar projects, like new operating systems, product re-positioning, and divisional restructurings, both initiatives will lag expectations. Valuing innovation over completion really puts the cart before the horse.

Innovation will continue to grow as a core value. Inside its core, differences, failure, persistence, trust, playfulness, and small improvements coexist together. And it’s organization wide. As John Wooden, a leader with a strong track record for adapting to changes in his environment, stated, “Much can be accomplished by teamwork when no one is concerned about who gets the credit.”